I outlined my investing outlook to Maven subscribers mid-last week. The first point was: A crash might be coming. That was validated within 24 hours. Another directive: Don’t try to catch a falling knife. I do not know what gold is going to do. Forced to guess, I would say there is more pain on the horizon. Chartists and technical analysts generally agree that, once it broke below $1,142, gold had another $100 to lose easily, perhaps more. Sentiment is negative; momentum is to the downside. The only significant support I see for gold comes, ironically, from those seeking to profit off its slide: the shorts. Short selling positions are massive right now, in gold and in gold miners.
All those shorts create downward price pressure, to be sure – but only until prices slide enough that the betters get nervous. Short selling is a very exposed gamble. The faster the price of gold falls the harder it will be for shorters to stick to their guns. The more gold declines the more pressure will build on shorters to buy gold to cover their bets. So that’s positive for gold in the short term, albeit once the price weakens even more. The bigger the resulting bounce, the more confidence it will create for contrarian investors that this truly is the bottom. After almost five years of pain, I think the mining bear market is throwing its final punches. This last leg down might last a few days, a few weeks, or a few months. Wish I knew, but I don’t. What I do know is that, until it is over, things are going to be ugly for those of us left in mining. Then it will get better. So hold on. Perhaps don’t bother checking on your mining stocks this week. Don’t let yourself check the price of gold too often. The bleeding will gradually slow, then stop, and then it will be time to average down on favorite holdings and establish positions in quality stocks that you have long eyed. But no rush.